E-Destruction 101

Independent of the business model that information destruction professionals select for their operations, certain environmental and safety considerations are required when handling electronic devices. Primarily, "What comes in, must go out." That means, if a piece of electronic equipment has a circuit board, it has toxic material. The Resource Conservation and Recovery Act (RCRA), which gives the Environmental Protection Agency the authority to control hazardous waste from the "cradle-to-grave," including generation, transportation, treatment, storage and disposal, is not heavily enforced. However, if a company should get caught in violation of the RCRA, the fines are expensive.

Because of the potential toxicity of some components, special handling techniques should be adhered to and workers should have adequate personal protection equipment.

Also, the liability for mishandling customer data is potentially very great. Just as with paper documents, once you take possession of these devices, you are responsible for safeguarding them. Electronic media and devices are also easier to steal, easily fitting in a pocket, and contain great volumes of information.

Finally, there are logistics issues to consider. Electronic devices are heavy and do not ship conveniently or easily.

After considering these liability issues, an information destruction professional can enter the electronics recycling realm in a number of ways.

OPPORTUNITIES IN E-DESTRUCTION

Some document destruction professionals enter the business passively, in that they are not really marketing IT destruction services, but are asked by their existing customers to handle their IT equipment or electronic storage devices. In some cases, these document destruction companies are not really interested in handling electronics, but they don’t want to risk losing a customer or allowing a competitor to get a foothold in their accounts.

Protecting their accounts is a considerable motivating factor, because document destruction companies are not the only firms exploring adding services. Computer recyclers are looking into adding document destruction services, and waste haulers are exploring adding e-destruction services and document destruction services.

Other document destruction professionals are actively looking for opportunities in electronics recycling or electronic media destruction. They have made a conscious decision to provide e-destruction services to existing and new customers or are responding to a competitor’s foray into this segment.

Also, a key customer could request e-destruction services, creating an opportunity for the document destruction firm that warrants the expenditure of capital and the diversion of resources to make it happen.

Among the questions to ask yourself if you are considering handling e-destruction services are:

1."Will I focus on security in the e-destruction services I provide?" While this is a no-brainer, it is worthy of mention. Many companies get into the business for the back-end revenue off the equipment, which makes the business difficult to sustain in light of its low margins and commodity-driven nature. This model could sometimes force decisions that compromise customer security.

2."Will I perform the services myself or will I use a third-party vendor/partner for all or part of this endeavor?" Partners/vendors allow for quicker and easier entry into the market and give you an opportunity to "try before you buy." However, problems could arise if the relationship does not work out.

It’s important not to dabble in information technology asset management

However, for those document destruction firms that decide to pursue e-destruction opportunities, a variety of business models exist.

A variety of business models for ITAM exist that document destruction firms can use alone or in combination.

Such an arrangement benefits a document destruction firm because it entails few out-of-pocket expenses apart from those associated with due diligence and legal fees for the non-disclosure and non-compete agreements. These agreements are also easy to manage and allow you to keep control of your customer and account.

However, the limitations include being at the mercy of your partner’s time frame, culture and philosophies; enforcing non-compete and non-disclosure agreements; and, finally, if your partner performs poorly, it will reflect poorly on your company.

This model creates an additional revenue stream that aligns well with your core competency of document destruction, allows you to maintain a position of expertise and to be a full-service provider for your customer’s information and you potentially possess all of the equipment you need to destroy hard drives.

Limitations associated with this business model include having to invest in personnel, equipment and technology to perform the service effectively and reliably; disposing of the waste properly could represent a cost to you if the volumes are insufficient to interest a commodities buyer; state or local permitting may be required to destroy or process this material; and existing equipment could be damage or excessively warn or incur higher maintenance costs. Additionally, flammable material in hard drives could present a fire hazard if sparks ignite paper particles or dust.

Variations on the limited destruction model include disabling and shredding or otherwise completely destroying the hard drives. To disable the hard drives, you damage them by extreme physical force to their platters, such that the connections to the drives are mangled. This is an intermediary step before a third party performs the ultimate disposition by smelting or shredding the drives.

I do not rely on degaussing to damage the hard drives. I find it is nearly impossible to easily and cost effectively verify the destruction of the drives and requires specific expensive equipment and specially trained technicians to operate and calibrate it.

The benefits associated with this model, in addition to maintaining complete control of your customer, are higher potential and bi-directional revenue and the ability to offer customers a solution that may not be strictly a cost to them but that might offer revenue back.

The limitations to this model are the daily/hourly margin reduction (18 percent to 36 percent per quarter), the introduction of new technology makes some devices worthless over night, it requires a high level of in-house expertise in computer hardware and computer resale market values and you can get quickly burned on equipment promised that is not delivered in a timely fashion. For example, a contract is signed Jan. 1 with pricing based on the fair market value as of Dec. 31. The customer drags its feet and doesn’t release the equipment until April 1. In the meantime, Dell comes out with a new special. While you originally projected making $100 per unit, now you will end up taking a loss on each unit.

When offering e-destruction services, you should not count on the backend revenue from equipment resale; you will go broke. You have to spend a lot of time with your clients getting detailed specifications of their equipment. No matter how good the equipment is, there will always be bad stuff that is pure cost. The biggest clients’ equipment will have the most value, since smaller businesses hold onto their equipment until it has no value left. The resale of equipment requires volume, volume, volume (thousands of like pieces at a minimum). Onsie, twosie retail sales via Ebay are low margin, labor intensive and customer service intensive.

The benefits to this model include assurance of complete destruction, no third party to deal with your customer base, less environmental liability and upfront costs than when dealing with monitors and reduced labor costs.

The limitations associated with this model are purchasing expensive shredding equipment, commingled by-products that must be properly managed, risk of losing customers to a vendor that can process monitors and the extreme volume needed to produce a return on investment.

The benefits of such a model include assurance of complete destruction and environmental compliance, no third party dealing with your customer base, providing a "one-stop shop," the ability to partner with or act as a vendor to other destruction companies, a reduction in labor costs and risk reduction for your customers.

Limitations associated with this approach include the expense of shredding, separation and filtration management; the need to generate very high volumes of separated by-products to make a profit; the potential for customers that want end-of-life asset management; and the extreme volume needed to produce a return on your investment.

For those destruction firms who opt for the partnership model, I suggest you do the following prior to finalizing a partnership agreement:

I hope these guidelines will help you form a beneficial partnership, should you decide that’s the best business option for your business.